Comparison Of Japan And The United States Direct Investment In China's Trade Effects

Japan and USA are not only China's principal trade partners, but also its main FDI source countries. However, the main driving force behind Japanese and U.S. direct investment is quite different. Generally speaking, the Japanese direct investment (JFDI) in China is a kind of more cost-driven FDI (including vertical FDI and export-platform FDI), while U.S. direct investment (USFDI) is more market-seeking FDI. The differences in the main driving force give rise to different effects of JFDI and USFDI on China's foreign trade. Based on the time series data of the Sino-Japanese and Sino-US bilateral trade from 1988 to 2008 published by the Japan Customs and the U.S. Department of Commerce, this paper empirically exams the effects of JFDI and USFDI on China's foreign trade, using the Co-integration test and OLS econometric methods. The paper draws the conclusion that both JFDI and USFDI have promoted China's trade performance. However, JFDI shows stronger trade creation effect than USFDI. In respect of improving the China's export structure, USFDI has done a slightly better job than JFDI.